ISET Policy Institute and the German Economic Team (GET) Help Fix Georgia’s Mining Regulations

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Created: 18 December 2015

Georgia has considerable deposits of metal (for instance, manganese, copper and gold) and non-metal resources, however our current regulations do not encourage investment while at the same time failing to generate significant fiscal revenues. Instead of considering the country’s long term needs, these regulations (licensing procedures and royalty fees) have been designed with two objectives in mind:

1) Generate immediate fiscal revenues even before the start of extraction (through exploration and licensing fees);2) Minimize human intervention in monitoring the sector (by making royalty payments independent of actual extraction volumes and prices). While reducing corruption risks, this approach is too rigid when it comes to risk sharing and incentivizing investment.

Over the past several months, ISET Policy Institute’s Energy and Environment Policy Center has been working together with the German Expert Team (GET) to provide the Georgian government with advice concerning a possible overhaul of the current regulations. We presented our preliminary recommendation at a meeting hosted by Deputy Minister of Environment and Natural Resource Protection Teimuraz Murghulia on December 17, 2016.

Delivered by David Saha (GET), Eric Livny and Levan Pavlenishvili (ISET-PI), our recommendations were very well received. Going forward, we agreed to help the Ministry draft a new law and any specific regulations that would be required.The policy paper on which our recommendations are based is focused on metallic and higher value minerals, which should be treated in a more sophisticated way compared to gravel, limestone and other non-metal resources that serve Georgia’s internal needs. Some of our specific recommendations are:

• Consolidate and improve investors’ access to information about Georgia’s known mineral resources;• Reduce exploration license fees;• Formulate clear rules on expropriation and compensation of landowners;• Include investor pre-qualification screenings before licenses are allocated;• Implement license auctions only in case of multiple bidders; rely on royalties to extract natural resource rents in case of single bidders.• Develop two part royalty system including a (i) fixed and (ii) market-based components;• Develop a system to monitor extraction volumes of high value (exported) mineral resources;• Join the Extraction Industries’ Transparency Initiative (EITI);

In addition to Ministry of Environment and Natural Resource Protection staff, the meeting was attended by the National Environment Agency’s Deputy Directors Alexandre Devidze and Ramaz Gerliani, and advisor to NEA director’s Lasha Arevadze.